PublicInvest Research

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PublicInvest Research Headlines - 14 Nov 2018

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Global: OPEC sees demand for its crude declining faster as rivals surge. OPEC sees demand for its own crude falling even faster than expected in 2019 as a slowing global economy crimps demand and rival supplies surge. The figures, published in the cartel’s monthly report, underline why Saudi Arabia and some other members are talking about cutting production again. The data could bolster their case for a significant supply reduction before a crucial meeting in Vienna next month. Global appetite for the group’s crude will be about 31.5m barrels a day next year, OPEC said. That’s 500,000 barrels a day lower than its forecast just two months ago and about 1.4m below current production. (Bloomberg)

US: Budget deficit widened in Oct, Treasury says. The US government ran a USD100bn deficit last month, compared with a USD63bn budget gap in Oct 2017, as spending growth outpaced revenue growth, the US Treasury said. The Treasury Department said federal outlays rose 18% in the first month of the 2019 fiscal year compared with the same period a year earlier, in large part because of higher spending on Medicare, national defense and interest payments on the debt. Some of the deterioration in Oct can be explained by quirks in the calendar. Oct. 1 last year fell on a Sunday, so government payments due that day were made the previous Friday, shifting some outlays to Sept. That held down Oct 2017 payments and made Oct 2018 payments worse by comparison. If not for the timing shifts, last month’s deficit would have been USD1bn less than the same period last year, according to Tuesday’s budget statement. (The Wall Street Journal)

US, China: Talking ‘at all levels’ on trade, says Kudlow. The US and China have resumed contact “at all levels” over trade ahead of a planned meeting between President Donald Trump and China’s Xi Jinping, White House economic adviser Larry Kudlow said. There’s no certainty that China will cede to US demands in trade negotiations, but “it’s better to talk than to not talk,” Kudlow said. A top Chinese negotiator, Liu He, will probably visit Washington shortly to advance “some informal talks,” Commerce Secretary Wilbur Ross said at a conference. “We are talking to them again,” Kudlow said. “We’re having communications at all levels of the US and Chinese government” to prepare for the Group of 20 leaders’ summit in Argentina, taking place Nov 30 – Dec 1. (Bloomberg)

EU, UK: Agreed on a Brexit text. The UK and the EU have agreed on a draft divorce deal. Now Prime Minister Theresa May puts it to her Cabinet, who have to decide whether to back it or resign. Negotiators have settled on a text after working through the night this week in Brussels, according to three people familiar with the situation. May’s ministers have started filing into her office to read it and are due to meet Wednesday at 2 pm to sign off. EU officials cautioned that the deal isn’t done until it gets political sign-off in London. (Bloomberg)

UK: Wages rise most since 2008 amid tight labour market. UK wage growth accelerated to a near 10-year high, backing the BOE’s view that there is now no spare capacity in the labour market. Average earnings excluding bonuses rose 3.2% in the three months through Sept from a year earlier, the most since Dec 2008, the Office for National Statistics said. Unemployment unexpectedly rose from a 43-year low to 4.1%. The pay figure was higher than the 3.1% rate predicted by economists in a Bloomberg survey. Upward pressure on wages is a sign of domestically generated inflation. With productivity subdued (output per hour rose an annual 0.1% in 3Q), BOE officials say gradual rate hikes will be needed. (Bloomberg)

Japan: 3Q GDP contracts annualized 1.2%. Japan’s economy shrank at an annualized rate of 1.2% in July-Sept, government data showed, after natural disasters disrupted production and a slowdown in overseas demand undermined exports. The preliminary reading for 3Q GDP compared with the median estimate of a 1.0% annualized contraction in a Reuters poll of economists. It followed a 3.0% expansion in April June. On a QoQ basis, GDP shrank 0.3%, matching the median estimate. (Reuters)

Malaysia: SME non-performing loans in Malaysia among world's highest. Malaysia’s non-performing loans (NPLs) among small and medium enterprise (SME) entrepreneurs are among the world’s highest, said Entrepreneur Development Minister Datuk Seri Mohd Redzuan Yusof. As such, he said, the Government has taken steps to reduce the NPLs by increasing entrepreneurs’ awareness on the ecosystem of their respective business ventures. Mohd Redzuan said in other countries, the rate of NPLs among SMEs is low, ranging at about 8% or less, while Malaysia’s is in the double-digit. He said the National Entrepreneur Group Economic Fund’s (Tekun Nasional) NPLs currently stood at RM600m, adding, there were many factors which caused entrepreneurs to default on their loans, including failure to understand the market and its demands, the cost of doing business and the lack of creativity in conducting it. (The Edge)

Malaysia: Corporate tax to stay at 24%. The government has given an assurance that it will not raise the corporate tax of 24% in the near future, despite being faced with a weak fiscal position, said Finance Minister, Lim Guan Eng. He said the tax would remain with the prospect of a reduction if the government’s fiscal position improves. “I feel the corporate tax can be reduced, but some time is needed,’’ he said in his speech when officiating the National Tax Seminar 2018. Lim said the government was currently in the process of recovery in terms of trying to nurse its finances back to health. As such, he said, sometime is needed towards ensuring the recovery of the fiscal position. "(The recovery in the fiscal position) is not for the short or medium term,” he added. Meanwhile, Lim said the government will start making refunds under the Goods and Services Tax (GST) and income tax refunds of RM37bn to companies and individuals concerned from early next year. (The Edge)


Media Prima (Neutral, TP: RM0.49): Hit by ransomware attack, say sources. Media Prima has been hit by a ransomware attack since last Thursday, preventing the use of its in-house emails, according to sources. The Edge Financial Daily has learnt that the ransomware attackers demanded Media Prima to pay 1,000 bitcoins to access its email system again. Bitcoin is currently trading at USD6,454 (RM27,042.26) on Bitfinex — one of the world’s largest and most advanced cryptocurrency exchanges. This translates into USD6.45m. When contacted, Media Prima did not confirm or deny whether there was a ransomware attack. (The Edge)
Comments: While Media Prima declined to comment on this when contacted, we note that if the Group pays the ransom, it will hit its headline profit in FY18. Based on our estimates, the headline profit will fall by c.22%. Nonetheless, the core net loss will be unaffected given the one-off nature of the expenses. Maintain Neutral with an unchanged TP of RM0.49.

IHH Healthcare (Neutral, TP: RM6.57): Top executives join Fortis board. Four top executives of IHH Healthcare, including MD and CEO Dr Tan See Leng, have joined the board of the group's newly controlled Indian healthcare group Fortis Healthcare Ltd. Fortis said the appointment of the four additional directors came after the group completed the preferential allotment of 235.3m shares to IHH's wholly-owned unit, Northern TK Venture Pte Ltd (NTK). The allotment resulted in IHH, through NTK, owning a 31.1% controlling stake in Fortis. (The Edge)

Suncon: Wins RM352m Sunway Velocity Two apartment contract. Sunway Construction Group's (SunCon) unit, Sunway Construction SB (SCSB), has bagged construction works worth RM352.1m from Akitek Akiprima SB on behalf of Sunway Velocity Two SB (SVTSB). SunCon said the job entailed works for the main building and associated external works for the proposed Sunway Velocity Two commercial development comprising serviced apartments, podium car park and office block at Jalan Peel, Kuala Lumpur. (Bernama)

Scientex, Daibochi: Trading halt ignites talk of potential merger. Both Scientex and Daibochi have announced a halt to share trading today (Nov 14), sparking expectations of a merger announcement. The two plastic packaging companies said Bursa Securities has approved their request for the suspension pending the release of a material announcement. (The Edge)

Perdana Petroleum: Bags RM16m vessel contract. Perdana Petroleum has secured a contract worth RM16.20m from ROC Oil (Sarawak) SB to provide one platform supply vessel and two anchor handling tug supply (AHTS) vessels. The vessels are for Phase 2 of the D35 Drilling Campaign Offshore Sarawak, Perdana Petroleum said. The value of the 380-day contract includes a 30-day extension option. The company said the contract, which commenced on Sept 20, is expected to contribute positively to its earnings and net assets for the FY18 and FY1). (The Edge)

Lay Hong: With Japan's NH Foods open food manufacturing facility in Pulau Indah. Japanese food processing group NH Foods Ltd, and poultry and eggs firm Lay Hong, officialy opened their new food manufacturing plant today in Pulau Indah. The plant is operated by NHF Manufacturing (Malaysia) SB, owned 51% by NH Foods and 49% by Lay Hong. The joint-venture is optimistic about its long-term prospects due to the demand for its processed foods in the domestic and export markets, as well as the upcoming Tokyo 2020 Olympics, according to a statement issued on behalf of NH Foods. (The Edge)

Bio Osmo: Disposes of bottled drinking water business. Bio Osmo is disposing of its loss-making bottled drinking water business for RM2.5m in line with its plan to focus on hospitality businesses. The move is also in view of the continuous pricing squeeze, rising production costs and capacity constraint, the group said, adding that the disposal will allow it to curtail further losses in future. Bio Osmo said it has entered into a share sale agreement with Start Sphere SB to dispose of its 100% equity interest in Amshore Holdings SB. The group said the transaction, which is expected to be completed by the 4Q, could generate an estimated one-off gain on disposal of about RM100,000. (The Edge)

Tiger Synergy: Seeks to raise up to RM10.5m via private placement. Tiger Synergy has proposed to raise up to RM10.5m via private placement to third-party investors to be identified later. It said the proposed private placement will strengthen the group's capital position and provide it with the necessary funds for the preliminary expenses of its Alam Impian project in Shah Alam, Selangor. Tiger said the proposed private placement will involve the issuance of up to 149.9m shares, representing not more than 10% of its issued shares. As at Oct 29, the issued share capital of Tiger was RM157.8m comprising 604.3m shares. (The Edge)

Sterling Progress: Seeks to raise up to RM6m via private placement. ACE Market-listed Sterling Progress has proposed to raise up to RM6m via private placement to third-party investors to be identified later. It said proceeds from the proposed exercise will be used for the purchase of smartphones and laptops for its information, communication and technology (ICT) segment. Sterling said the proposed private placement will involve the issuance of up to 32.1m shares assuming none of its outstanding warrants is exercised, representing not more than 10% of its issued shares. As at Nov 8, Sterling has an issued share capital of RM46.9m comprising 321.3m shares and 78.8m outstanding warrants. (The Edge)

MBSB: 3Q profit higher by 21%. Malaysia Building Society (MBSB) saw a 21% jump in net profit for the 3Q ended Sept 30, due to a lower charge of impairment allowances on loans and financing. The group said its impairment allowances for the third quarter decreased by RM65.4m, driven by favourable forward-looking macroeconomic variables forecast by an external agency applied to the retail portfolio. For the 3Q, MBSB posted a net profit of RM122.0m compared to RM100.7m a year ago. (StarBiz)

IPO: Techbond to raise RM39m via IPO. Industrial adhesives and sealants maker Techbond Group, en route for a listing on the Main Market of Bursa Malaysia, expects to raise RM39.7m from its initial public offering (IPO) exercise. Its MD Lee Seng Thye said that the listing exercise would further strengthen the company’s corporate profile to enhance market awareness of its business as well as provide a platform for its growth regionally. He said the company would continue to capitalise on its strengths to generate sustainable revenue from its existing businesses. Application for the public issue will close on Nov 23. The company is slated to be listed on Dec 5. (SunBiz)

Market Update

The FBM KLCI might open with a negative bias today after US stocks gave back early gains, with the S&P 500 ending lower for the fourth day in a row, as a rebound for techs and financials faded and the energy sector tumbled as oil prices once again came under heavy pressure. In the currency markets, all eyes were on Sterling following news that UK cabinet ministers had been summoned to an emergency meeting on Wednesday to sign off a draft Brexit agreement with Brussels. On Wall Street, the S&P 500 ended a choppy session 0.2% softer at 2,722, following a 2% drop on Monday. The index has now fallen more than 3% since last Wednesday’s close. The Nasdaq Composite finished barely changed on the day, while the Dow Jones Industrial Average shed 0.4%, pegged back by a fall for Boeing shares. In Europe, the region-wide Stoxx 600 index rallied 0.7%, with the Xetra Dax in Frankfurt gaining 1.3% and the Cac-40 in Paris ending 0.9% higher.

Back home, the FBM KLCI index lost 8.57 points or 0.51% to 1,687.57 points on Tuesday. Trading volume increased to 2.04bn worth RM1.94bn. Market breadth was negative with 323 gainers as compared to 484 losers. The regional markets finished mixed with the Shanghai Composite gained 0.93% and the Hang Seng rose 0.62%. The Nikkei 225 lost 2.06%.

Source: PublicInvest Research - 14 Nov 2018

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